Glossary · Macro · Beginner-friendly
Bonds
In plain English
A bond is a loan you make to a government or company. They pay you interest; you are a lender, not an owner like with stocks.
Everyday analogy: IOUs with a schedule - more like being the bank than owning the shop.
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Why it matters
Bonds are the lending side of portfolios. They behave differently from stocks when rates and credit stress move.
A bit more detail (optional)
Bond vs stock
Bondholders are creditors. Stockholders own residual upside. In distress, bonds usually rank higher; in booms, equity captures more upside.
Rates and prices
When yields rise, existing lower-coupon bonds usually fall in price. Longer duration means larger swings.
Simple examples
Why bond prices fall when yields rise
A bond paying 2% looks less attractive when new bonds pay 4%. Its price falls until its yield is competitive again.
Rates up, prices down
New bonds offer higher coupons, so existing lower-coupon bonds fall in price until their yields compete again.
Easy mistakes to avoid
- Assuming bonds always rally when stocks fall
- Ignoring duration risk inside “safe” bond funds
- Treating bond price and yield as unrelated
Remember: Bonds lend - stocks own. Keep the jobs clear in a portfolio.